Heavily Burnt Toast Stock Is Worth a Bite Now

TOST stock - Heavily Burnt Toast Stock Is Worth a Bite Now

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The claim that Toast (NYSE:TOST) stock has disappointed investors is an understatement. After surging to highs of $69.9 in November 2021, TOST stock has plummeted nearly 70%. Today, the stock has witnessed a fresh round of selling and is down by over 12%.

The reason — Moffett Nathanson analyst Eugene Simuni has initiated coverage on TOST stock with a “sell” rating and a price target of $19. Eugene believes that Toast faces stiff competition from the likes of Block (NYSE:SQ) and Fiserv (NASDAQ:FISV). This is likely to limit the company’s growth potential.

Of course, not all analysts are bearish. Wells Fargo has also initiated coverage on TOST stock today with a stock price target of $29.

Even if the bearish call seems more realistic, the stock has limited downside potential from current levels. With the stock being oversold, a relief rally seems likely. As a trader, it makes sense to go long around the $18 to $20 levels.

It’s worth noting here that Toast reported revenue of $1.7 billion for 2021. On a year-on-year basis, revenue surged by 107%. For the current year, the company has guided for revenue of $2.4 billion. While growth is likely to decelerate, this factor is already discounted in TOST stock.

Last month, Baird analyst David Koning opined that the company’s guidance for 2022 might be conservative. If Q1 2022 results exceed expectations, there is a case for a meaningful reversal rally. Baird has a price target of $25 for the stock.

Investors will also be concerned about the fact that Toast reported negative adjusted EBITDA and free cash flow for 2021. However, last year, the company reported $568 million in annual recurring revenue (ARR). As the ARR swells, Toast will be positioned to deliver better margins.

The company’s Q4 2021 presentation also indicates that Toast will be targeting international markets in the future. Toast believes that the global addressable market for its restaurant industry solutions is $110 billion.

It clearly seems that the bearish view on TOST stock is overdone. The correction, therefore, seems like a good opportunity to consider some exposure. Snap (NYSE:SNAP) is a recent example of a turnaround quarter that charged-up the stock. I will not be surprised if TOST stock pulls off a similar reversal rally.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.


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